Funds Flow Into Stock Mutual Funds, Exit Equity ETFs

By Johanna Bennett

It’s been called by some the start of the “Great Rotation.” Last week, Wall Street was amazed to learn that investors fed equity funds the fourth largest weekly cash infusion over the week ending Jan. 9 since the mutual fund watcher Lipper began tracking the data in 1992. They handed those funds and an eye-popping $18.3 billion, with more than half finding its way into exchange-traded funds.

How did they do this week? Money continued to move into U.S.-based equity funds during the week that ending Jan. 16, though nowhere near the huge sum raked in during the previous week. According to figures from Lipper, net new cash into stock-based mutual funds and ETFs totaled $287 million, a drop in the bucket compared to the previous week’s astounding figure.

But dig into those numbers, and one thing becomes apparent. While investors continued to plow big bucks into U.S. stock-based mutual funds, they didn’t show much enthusiasm for U.S.-based equity ETFs.

Roughly $3.75 billion flowed into equity mutual funds during the week that ended on Jan. 16, while investors yanked roughly $3.5 billion out of U.S.-based equity ETFs, according to Lipper.

Bond funds, meanwhile, attracted $4.63 billion in net new cash. Bond mutual funds collected $4.21 billion of that sum, compared to the previous week’s inflows of $5.45 billion. Bond ETFs, meanwhile, seemed to regain some favor with inflows of $417.82 million compared to the $1.21 billion pulled out of the funds the previous week.

Analysts agree the big sums moving into stock-based mutual funds represent a change from last year, when investors yanked a total of $129 billion out of equity funds while pouring $258 billion into fixed-income funds.

Over the last two weeks, $11.3 billion has flowed into U.S. stock-based mutual funds – the biggest two-week move in more than a decade, according to Lipper analyst Matthew Lemieux who marvels “money has flowed into equity-based mutual funds for a second consecutive week and we haven’t seen this level of commitment in some time.”

To be sure, the outflow from stock-based ETFs is a change of pace from the previous week’s big gains of $10.78 billion. Typically, ETFs appeal to institutional investors, while retail investors favor mutual funds.

In particular, investors shunned the SPDR S&P 500 ETF (SPY), from which they pulled $4.21 billion. And Lipper’s Lemieux says that the recent five-year high with the $&P 500 recently hitting a five-year high, may have fueled profit taking, with investors favoring active investing.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.

Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.